SBP, PBS import data gap reaches $4.6 billion in nine months

ISLAMABAD: The yawning gap between import data of State Bank of Pakistan (SBP) and Pakistan Bureau of Statistics (PBS) has touched new heights as now total gap in dollar terms stands at $4.6 billion in the first nine months (July-March) period of the current fiscal year.

This gap has been widening, especially relative to the $51 billion China-Pakistan Economic Corridor (CPEC) where the differences in imports related to power generation machines witnessed new peaks.

As per the SBP data, the power generation imports stood at $884.316 million during the first nine months, while the PBS data showed $2.336 billion in the same period, indicating that the gap has been widening with every passing day.

Some independent economists are expressing their apprehensions that there might be over-invoicing going on, which should be analysed before reaching any final conclusion.

Such discrepancy has occurred in the past, but the level never crossed $1 to $1.6 billion in the last ten years. This phenomenal surge could touch the $6 billion mark by the end of the current financial year.

The SBP in its second quarter report of the current fiscal year had pointed to such an occurrence, and it was a matter of concern that the issue could not be resolved.

When the SBP spokesman was contacted for comments last week, he said that this issue was on the radar screen of the central bank and efforts were underway to reconcile these figures. He said the machinery import under CPEC arrangements was arranged in a way that payments were made outside and the machinery physically reached the country. “We are trying to resolve this issue amicably,” he added.

When PBS chief Asif Bajwa was contacted on Monday, he said both sides would sit together before the budget for reconciling these figures. He said PBS took data on FOB basis, while SBP took data on the basis of opening up of Letter of Credit (L/C) and such discrepancy happened which would be resolved amicably again this year before the upcoming budget.

While highlighting this issue, the SBP in its quarterly report had stated that in Pakistan, data regarding the import of goods was compiled by two different government bodies. One is the PBS, which compiles data reported by customs authorities (which record imports when the goods physically cross the country’s border).

The other is SBP, which receives data from commercial banks when importers make payments against L/Cs. Due to a variety of factors (like imports on deferred payments, freight and insurance, etc), there is a natural discrepancy between the two datasets.

Deferred payments, for instance, result in a time lag between the recording of imports by customs and their reporting to SBP. Besides, there are certain items, like gold, and vehicles (under the baggage scheme) etc, for which the payment burden does not fall on the interbank market.

Usually, for any period, import data recorded by PBS tends to be higher than that available with SBP: the 10-year average difference between the two (for July-December) is $1.6 billion.

However, this difference has widened considerably from FY15 onwards, and touched an unprecedented $3.0 billion in July-December FY17.

Moreover, a large share of this discrepancy can be explained by the surge in import of power generation machinery, which is being recorded by customs but is not fully visible in import financing data available with SBP.

The gap in import data for power generation equipment also widened dramatically to $1.1 billion in the first half of FY17, from the previous 10-year’s average of just $193 million. Since most power sector activity in the country is taking place under the CPEC umbrella, it is highly probable that the widening gap between the two import datasets is linked with the CPEC accord (signed in April 2014). Typically, banks report import financing data to SBP after importers make payments against L/C. However, that appears not to be the case with imports of power generation machinery over the past two and a half years: there has been a relatively minor increase in these imports based on L/C-level data provided by commercial banks to the SBP.

Hence, it appears that the bulk of these machinery imports are being financed from outside the Pakistani banking channel.

This is also supported by the absence of any outsized pressure in the interbank (which would have been a near certainty if the import bill had grown by a further $3.0 billion in July-December FY17, as per PBS data, without a commensurate increase in financing flows).

This difference indicates that capital equipment imports into the country, FDI and loans from China are not being fully captured in balance of payment data.

For its part, SBP has enhanced reporting requirements for commercial banks regarding foreign currency accounts maintained with them by corporate entities operating in the country. Through EPD Circular Letter No 14 (issued on December 7, 2016), SBP directed commercial banks to clearly specify whether each project/company maintaining a special foreign currency account with them, whether it is part of CPEC or not.

Moreover, banks have also been instructed to clearly specify the nature of each foreign exchange transaction conducted in these accounts (like import payments, loan disbursements and repayments, repatriation of dividends, disinvestment of foreign investment, and issuance of bonus shares, etc).

This will help clarify whether the financing of CPEC-related capital imports is coming in the form of loans (both from commercial and/or foreign sponsors), and equity investment (in cash or kind).